Breaking Down the Rest of 2023


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Now let's get into what we reviewed.


Here are the 4 key things we went over:

  • Where the real money is being made in A.I.

  • How travel is pulling off a big recovery

  • Why inflation data is making us optimistic

  • What the debt-ceiling negotiations can do to the wider market

And if you're too busy to listen to the entire recording, below we included a compact summary of what went down.

To get all the juicy details, just listen to the entire recording.

And now, onto the summary👇


Inflation took a bigger hit this week while the market kept wobbling on news surrounding more banking uncertainty. Both the CPI and PPI trended in the right direction, which is pushing a lot of bull sentiment out of the market right now. 

However, now is still a time for long-term narratives and making sure we are defensively shoring up our portfolios against any one of the dozen possible black swan events that could hit this market. 

So this week, we focused on recovery in the travel space as well as the companies that are doing real work generating real revenue in the AI space. 

We're also looking forward to retail earnings this week so we can get a solid barometer for how resolute the U.S. consumer is feeling. 

It's a bit of a grab-bag here as a more bullish kind of volatility takes hold of the market with inflation looking more and more under control. 

But there's still plenty of gains to be had so long as we properly identify winners and losers on an industry-by-industry basis. 

Let's dive into the details 👇


Looking Long Term:

While most executive teams are basically using AI to generate a few extra free percentage points for their stock, there appear to be real areas where the real money is being made right now. 

Specifically, Palantir's stock went meteoric at the beginning of last week when they announced they were profitable again and trending towards having profitable quarters for the rest of the year. A lot of their new revenue and efficiency is coming from their AI models that their government and enterprise customers can use.

Palantir's business model is centered around data security, and their LLM's can privately trawl through individual customer datasets. This is huge for their customers and proving to be a boon for Palantir. 

Meanwhile, the market really bought into the hype coming out of Alphabet's Google I/O event where they unveiled new LLM models and more specific toolsets for their AI products.

Half of the market's positive reaction is coming from the fact that Google finally has a roadmap for getting AI into their search product, and the other half centers around all the specific use cases businesses will have when leveraging all of Google's new PaLM AI models. 

Both of these developments show us that the real money in AI right now is specific use cases.

General models like ChatGPT are great, but it's really hard for the market to figure out how to value them right now. So the general AI war between Microsoft, Google and anyone else who steps in will probably not drive any real value for quite some time.

Meanwhile, businesses that can articulate specific product lines with predictable profit are going to be the real powerhouses that grab upside in the short term while the market hunts for solid value-props.  

But the next long-term development is more of a correction than anything. 


What's Happening in Travel:

It's official: travel is looking more back than ever as we phase into the peak season for most travel brands. 

Airlines are riding high off of increased demand and reduced energy prices. While most folks haven't hit 2019 capacity yet, there's still a lot to be excited about in the travel industry. 

Specifically, Six Flags has managed to hit huge milestones in revenue and revenue-per-attendee in their off-season, causing a lot more bull sentiment to hit. 

This is why we're so keen to dive into retail earnings this week.

There are a lot of factors that help us determine exactly where the U.S. consumer is.

We're concerned about consumers running out of steam as inflationary pressure has ground down most savings accounts and pushed credit card debt to over a trillion dollars. But instead of losing steam, U.S. consumers may simply be shifting their spending habits back to experiences instead of goods. 

Furthermore, despite layoffs and reduced spending, corporate money is flowing back into the travel space worldwide.

Hotels and airlines are picking back up as more and more dealmaking shifts back to a face-to-face model. These signs are encouraging and we'll go through which companies are best positioned to win in this space over the next few weeks. 


Wrapping This Up:

Another really encouraging thing that came out of this week was other items on the CPI are starting to dip. B

asically, inflation was largely being driven by energy prices, and one bad month for oil could spell disaster for the economy.

We've gotten a little lucky that energy prices have stayed consistently low, but finally, downstream effects are taking shape. Food costs decreased a bit and other service areas also went down a few basis points. Meanwhile, the price of new cars dropped pretty drastically while used cars finally stabilized.

Essentially, even though inflation is moving at a glacial pace now, it's finally moving in the right direction.

The only thing we're worried about is reports like Tyson's earnings call last week. Basically, the price of producing beef, pork, and chicken is skyrocketing thanks to a ton of factors coming out of last year's supply chain and inflationary issues. We want to see those prices stabilize and start going down now that energy costs have been consistently low. 

All in all, this remains the moment of truth. We won't have a solid idea of what direction we're moving until July's GDP numbers, but we're still hunting for long-term narratives to get us through whatever phase the market moves to. 

We'll keep you updated as the market develops.